Fed chair Jerome Powell to speak on market concerns Thursday

Bullard Warns of a U.S. Recession If Fed Keeps Raising RatesMore

"The U.S. economy is solid", Mr. Powell said.

The central bank's vice chairman, Richard Clarida, said later on Thursday that if the global slowdown and tightening of financial markets persists, the Fed would take policy steps to offset that.

Powell pointed out that the USA may be more vulnerable to a slowdown in global growth because of the rise on globalized business and supply chains.

The Fed chief was also asked about the partial US government shutdown. He brushed off the idea that tariffs were having a bit impact on either the USA economy or China's, saying trade disputes had not left a "visible mark" on the economies of either country.

Recessions are typically caused by inflation rising quickly and forcing the Fed to respond with high interest rates or some sort of bubble in markets.

Thursday's brief drop stood in contrast to the response to Powell's remarks last Friday, when the Dow surged 747 points after Powell said the Fed is willing to be "patient" and "flexible" about future interest rate hikes - sentiments he reiterated Thursday.

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US Federal Reserve Board Chairman Jerome Powell participates in a luncheon discussion hosted by the Economic Club in Washington, US, Jan. 10, 2019.

The prospect of rising interest rates that could slow the economy spooked investors and contributed to the downturn in U.S. and global stock markets late past year. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey.

The Fed chair, who has been publicly criticised repeatedly by President Donald Trump in recent months, warned that if there is an "extended shutdown", it would have an impact on the economy that "would show up in the data very clearly".

"If we find that the ongoing program of balance sheet normalization or any other aspect of normalization no longer promotes the achievement of our dual-mandate goals, we will not hesitate to make changes, " Clarida said. "You should anticipate that we're going to be patient and watching, and waiting and seeing".

He also said that the Fed had no preset path for rate hikes and would be "patient" when determining whether to hike interest rates further in response to strong US growth that risks sparking inflation, or to pause rate hikes to account for a global economic slowdown.

The central bank's quarterly forecast in December showed Fed officials still expect two more increases in 2019.

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